000857 Smithfield Foods First-Quarter Earnings Soar

Chicago - Smithfield Foods Inc. said that net income surged more than six times in its fiscal 2001 first quarter, helped by higher pork prices and beating already heightened analyst expectations.

Net income was $44.6 million or 81 cents a diluted share in the quarter ended July 30, compared with $6.9 million or 15 cents a share a year ago. The consensus analysts' estimate was 77 cents a share, according to market research firm First Call/Thomson Financial.

Smithfield, Virginia-based Smithfield Foods' shares were up 1-3/8 at 26-3/8 in New York Stock Exchange trading Tuesday. The stock has a 52-week high of 29- 3/4 and a low of 14-7/8.

Sales rose to $1.4 billion from $1.1 billion, primarily reflecting a 24% increase in unit selling prices for the company's meat products, Smithfield said. Sales tonnage actually declined slightly during the quarter as a result of decreased fresh pork tonnage, with fewer hogs being slaughtered.

The consensus earnings estimate had risen from 65 cents a share after the company said July 24 that it expected at least a five-fold increase in earnings per share, helped by its vertical integration strategy.

Though hog prices have fallen recently, which implies a decline in profitability at the company's hog production group, fresh pork margins improved substantially at the meat processing group as hog prices declined, chairman and chief executive Joseph Luter said in a news release.

“We expect fresh pork margins to continue to be favorable as we move into the fall and holiday seasons,” Luter said. “Given our first quarter results and the inherent counter-balancing benefits of hog production and meat processing, we are very optimistic that fiscal 2001 will be another record year for Smithfield Foods.”

Several years ago, the company moved to the vertical integration strategy of raising and slaughtering hogs and processing and selling pork products under brands that include Krakus, Kretschmar and Smithfield Premium. This has helped lessen swings in the company's earnings by allowing the company to be profitable even when hog prices decline, one analyst noted.

“That's the whole theory is that one way or another they'll make money,” said Kenneth Gassman, an analyst who follows the company for Richmond, Virginia- based investment banking firm Davenport & Co.

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